DCIT 5(2)(1), MUMBAI vs. K. GIRDHARILAL INTERNATIONAL LTD., MUMBAI

The first issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in restricting the disallowance u/s.14A of the Act r.w.r. 8D of the Rules to the extent of the exempt income in the facts and circumstances of the case.

We have heard rival submissions. We find that the assessee had earned exempt income in the form of dividend to the extent of Rs.76,77,552/- and claimed the same as exempt. It is not in dispute that the provisions of Rule 8D of the Rules are applicable for computing the disallowance u/s.14A of the Act in the instant case. The assessee however, restricted the said disallowance to the extent of exempt income i.e. Rs.76,77,552/- and made suomoto disallowance of the same in the return of income. The ld. AO however, ignored the same and made disallowance as per rule 8D of the differential sum of Rs.38,30,535/-. The ld. CIT(A) agreed with the contentions of the assessee and restricted the disallowance to the extent of exempt income. 4. Aggrieved, the revenue is in appeal before us. We find that this issue is now well settled by the decision of Hon’ble Apex Court in the case of Maxopp Investments reported in 402 ITR 640 (SC) wherein it was held that the disallowance u/s.14A should be restricted to the extent of exempt income and hence, we do not find any infirmity in the order of the ld. CIT(A). Accordingly, the ground No.1 raised by the revenue is dismissed. 5. The ground No.2 raised by the revenue is with regard to disallowance u/s.14A of the Act vis-à-vis computation of book profit u/s.115JB of the Act. We have heard the rival submissions. We find that 3 M/s.K.Giridharilal International the ld. AO has disallowed the sum of Rs.1,15,08,087/- u/s.14A of the Act r.w.r. 8D of the Rules while computing book profits u/s.115JB of the Act. We find that the Special Bench of Delhi Tribunal in the case of Vireet Investments Pvt. Ltd., vs. ACIT reported in 165 ITD 27 had held that the computation provisions provided in rule 8D of the rules cannot be imported in clause ‘f’ of explanation to Section 115JB(2) of the Act and that the disallowance in terms of Clause-‘f’ thereon had to be made based on actual amounts debited to the profit and loss account. This fact requires to be verified by the ld. AO vis-à-vis the annual amounts debited in the profit and loss account (both direct and indirect expenses) and disallowance in terms of Clause ‘f’ is to be made based on the outcome of said verification, while computing the book profit u/s.115JB of the Act. We direct the ld. AO accordingly. The ground No.2 raised by the revenue is allowed for statistical purposes.